NRF Applauds EC Ruling on Credit Card Fees

The National Retail Federation welcomed a ruling by the European Commission that hidden fees currently charged by MasterCard to process credit card transactions in Europe—similar to those that cost U.S. shoppers $40 billion annually—drive up costs for consumers in violation of EC rules and must be withdrawn within six months.

“European authorities say MasterCard is double dipping in Europe, and that’s exactly what we think both MasterCard and Visa are doing here in the U.S.,” said Mallory Duncan, NRF senior vice president and general counsel. “Visa and MasterCard are charging billions of dollars directly to consumers for all the fees that show up on their monthly statements, then they turn around and charge billions more from the hidden credit card fees they force merchants to include in the price of merchandise.

“These fees drive up the cost of merchandise for shoppers while delivering little if any benefit commensurate with the billions charged,” Duncan continued. “It’s time for this to stop, and authorities here in the United States should take the European ruling as a signal that it’s time to bring the same relief to U.S. consumers.”

The European Commission ruled today that so-called “interchange” fees charged by MasterCard and its banks violate EC Treaty rules on restrictive business practices and “inflated the cost of card acceptance by retailers without leading to proven efficiencies.” The commission ordered MasterCard to withdraw the fees within six months or face fines equivalent to 3.5 percent of global revenues.

The commission said the fees are “not illegal as such” and stopped short of saying MasterCard could not charge any interchange fee at all, NRF said. But any replacement system of fees, even if lower, would be allowed under EC rules only if MasterCard could show that it “contributes to technical and economic progress and benefits consumers.”

EC competition commissioner Neelie Kroes said the fees drive up costs for consumers as well as retailers.

“Consumers foot the bill as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices,” Kroes said in releasing the ruling. “The commission will accept these fees only where they are clearly fostering innovation to the benefit of all users.”

Averaging close to 2 percent in the United States, interchange is a fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected more than $36 billion in interchange fees last year, up 17 percent from 2005 and 117 percent since 2001. This year, the amount is expected to top $40 billion, or about $350 per household. Interchange is largely unknown to most consumers because Visa and MasterCard don’t disclose the fee on monthly statements and prohibit merchants from disclosing it on receipts.

MasterCard interchange rates for cross-border transactions in Europe currently range from 0.8 percent to 1.2 percent of each transaction. Visa was not addressed in today’s ruling but reached an agreement with the EC in 2002 that restricts its fees—previously averaging 1.1 percent—to a maximum of 0.7 percent. That agreement ends at the end of 2007, and the EC said today that beginning in 2008 Visa will be “responsible to ensure that its system is in full compliance with EU competition rules.”

Duncan testified before the House Judiciary Committee’s Antitrust Task Force in July that collusion between banks when setting the fees has violated U.S. antitrust law. The hearing was the second time Congress has looked at interchange practices in the past two years following a Senate Judiciary hearing on possible antitrust violations in July 2006. In addition, approximately 50 federal antitrust lawsuits against Visa, MasterCard, and their member banks have been consolidated in U.S. District Court in New York and are awaiting action.